The speaker will discuss the history and flexibility of captive insurance companies and how the lessons learned from 60 years of captives can be used to effectively utilize captives to manage and reduce a company's risk of IRS scrutiny.
Objectives of the Presentation
After completing this course, you will be able to:
Why Should you Attend
- Identify potential IRS issues with Section 831(b) micro-captive insurance companies
- Comply with the rules regarding prohibiting excessive premiums and prearranged deduction schemes
- Understand the IRS' requirements for captives to have 'insurance risk,' risk shifting, and risk distribution
- Know the changes brought about by the 2015 PATH Act affecting micro-captives structures, particularly the two-pronged diversification requirements for qualification under Section 831(b)
The use of captive insurance companies, particularly Section 831(b) 'micro-captives,' has come under increased IRS scrutiny. The Service has explicitly recognized micro-captives as a legitimate form of risk protection, but has expressed concern that these vehicles are being used more as a wealth transfer device than as legitimate insurance. The IRS has again placed Section 831(b) micro-captives on its 2016 'Dirty Dozen List of Tax Scams,' warning that certain micro-captives represent an 'abuse involving a legitimate tax structure.'
The PATH Act of 2015 made several changes to the interpretation of micro-captives under Section 831(b). These provisions have all but guaranteed both that micro-captives will continue to be used and likely will increase in frequency, and that the IRS will step up its examinations of the micro-captive arrangements. The PATH Act increased the 831(b) deductible premium limit from $1.2 million to $2.2 million, which will allow small businesses to better manage their coverage and risk profiles.
However, the Act also provided new diversification requirements for 831(b) structures and provided no 'grandfathering' mechanism. Micro-captives that do not meet the diversification requirements must be restructured prior to December 31, 2016, to maintain tax benefits under Section 831(b).
- Recent Cases
- Legislative Changes
- Dirty dozen listing and establishing business purpose
- Anti-avoidance law
- Substance over form
- Business Purpose
- Economic Substance
- IRS broad enforcement capabilities
The speaker will also discuss:
Who will Benefit
- Risk shifting and distribution
- IRS enforcement areas in micro-captives, including excessive premiums and risk definition
- PATH Act changes to 831(b) structuring
- Diversification requirements and tests
- Response to IRS challenges of 831(b) micro-captive structures
- Financial Advisors
- Tax Attorneys
- Business Owners